This is Wei writing from Amman, Jordan. Over the summer, I interned at Oasis500 on a rotational position with the Business Development Department and the Investment Department. I am going to share a couple of the things that I learned from working at an early stage VC / incubator.
- Make sure you have a good team. By this, I have two meanings- one of them is legally and the other one is practically. Legally- partnering with another person to start a business is essentially marrying him/her. You guys will argue, fight, and get upset. It is important to establish a clearly stated legal agreement on equity, duties, and what happens if you guys “divorce”. Practically, make sure your partner is extremely intelligent and qualified. I remember one of the companies that pitched to my VC was a team of PhD candidates and professors, and immediately, we became more seriously and gave a much more extensive thought to their ideas.
- Do your research. A lot of entrepreneurs go to angels and share their ideas. However, they are often not able to answer some of the questions that the angels raise. It is absolutely critical to do your research! There are many types of research. First, you can search online for information. Second, you can conduct a survey for people’s responses. Lastly, but most importantly, random focus group. It is extremely important to do that focus group research. The magic number for participants is usually 300 due to Central Limit Theorem in Stats. Doing the research before the pitch will give you a lot of credibility and make you look very knowledgeable in front of the investors.
- Acknowledge your competitors. A lot of time when you are pitching to a VC, investors are expecting returns in 3-7 years with 20% increase in your company’s valuation every year. But how do investors exit? There are four options. 1. They sell the stocks to the public (for the IPO ones). 2. They sell back the stock to the owners. 3. They sell the stocks to other investors. 4. They push you to sell off the company to the competitor. So, how are these points all relevant? If you acknowledge your competitor, it proves that there is already a market for your product. This makes the investors happy because they know your product can potentially make money. Also, since you’re just a startup, the most likely outcome of exiting is that your competitor buys you out. Having a competitor in this case becomes the most desirable situation.
- Do your experiment. What I mean by experiment is not your typical imagination with pouring chemicals or dissecting a frog. Rather, this is an experiment trying to sell a mock-up version of your product. For example, if your idea is a LED-light guiding system for parking solutions in garages, then your experiment should be walking around with a walkie-talkie and directing people to the nearest available parking spot for $1. Or, if your idea is a mobile application to call taxi services for driving drunk college kids on the weekends, then you should literally sit in your car on a Friday nights outside of a popular bar and hold up a sign saying “$5 per ride for college students only.” This is a crucial component for your idea if you want to show the investors that this idea is viable, and you’re already making money off the mock-up service/product!
- Create a minimum viable product, MVP, for your idea. A lot of investors like risk (that’s why they are investing), but they are also risk adverse. They don’t want to put money into something that only exists on paper. In reality, they want something that works. By creating a minimum viable product, it proves that you’re serious about working on this project, and it also provides a great demo for the investors to see how the product works.
Overall, good luck and have fun! Try to learn as much as possible from the pitch!
If you have any questions or if you want to engage in a longer conversation, feel free to contact me via wewa@umich.edu or www.linkedin.com/in/weiwang800
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